Whitney Tilson’s Long Lost Netflix Short

When it came to Netflix, Whitney Tilson’s short position was prescient. Sadly, he was also short on stamina. After taking a beating as the stock surged, he closed his position in February, when the stock was trading well above $200. The shares went even higher, to peak above $300, but after this summer’s catastrophic fee hike and Monday’s reduction in earnings guidance, they now trade at $78.

Here’s Mr. Tilson’s original thesis from December 2010, when he was already down on the trade. His prediction that Netflix’s “growth will slow over the next year” was precisely right. That’s more than can be said of the many Wall Street analysts on the wrong side of Netflix. Tuesday at least five lowered their ratings on the shares and many more cut their price targets, slamming the door after the horse had long bolted.

Netflix CEO Reed Hastings ends up the loser in the war of words. He wrote this article in December refuting Mr. Tilson’s short position and urging him to close it. Chief among Mr. Hastings’s concerns: That Mr. Tilson, a philanthropist, would lose money. That is a lesson in taking CEO pitches too seriously.

But while Mr. Tilson’s short position was hammered, at least Mr. Hastings was able to take some of his holdings off the table. He has been a steady seller through a prearranged trading program, unloading some shares at a price as high as $262. –John Jannarone

Comments (3 of 3)

Well, I'll thank Whitney for his advice. Last July I read his feb 2011 article "why we covered our netflix short". Then I went back and read his Dec 2010 "why we're short netflix" article. Then the next day I bought a few long term puts on NFLX. Thanks bro. The feb article was way less convincing than the first one.

2:22 pm October 25, 2011

Jim Bob wrote :

Sadly, Tilson is more of a follower than a leader. He clones his portfolio from his friends (Einhorn and Ackman) and rarely sticks his neck out. In the case of netflix, he did the opposite of what a true value investor should do, don't meet management. They are charming and will sway you, how else did they get that position in the first place. His numbers were right and he failed to listen to the data. Hopefully he gets it right next time. Couldn't be a nicer person.....

2:09 pm October 25, 2011

Anonymous wrote :

What the online ad business could learn from Netflix, Pandora and Amazon:

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